For the next year, we forecast economic activity growth of around three percent, representing a relatively modest increase compared to this year’s growth, but significant considering the absence of one-time factors present in this year.
The acceleration of GDP growth in the next year will be influenced by the increase in real incomes due to the decrease in inflation and the expected mild recovery of European economies, while high-interest rates will impact the slowdown of economic growth, stated Milojko Arsić, the editor of the Quarterly Monitor, presenting the new issue of this publication by the Economic Development Fund (FREN). On the other hand, he estimates that GDP growth this year will be in the range of 2.3 to 2.4 percent, similar to the growth rate of 2.5 percent in 2022.
“The significant difference is that last year’s growth occurred amid a decline in economic activity within the year, while this year’s growth was achieved with an increase in economic activity within the year. The recovery of agriculture from last year’s drought, a strong increase in electricity production due to the resolution of issues in EPS, and an extremely favorable hydrological situation and high growth in construction significantly contributed to the growth of economic activity this year.
The cumulative impact of these one-time factors on economic growth this year is estimated to be around one percentage point, meaning that without them, economic growth of around 1.5 percent would have been achieved,” said Arsić.
The authors of the Quarterly Monitor expect that the National Bank of Serbia (NBS) will continue to implement a restrictive monetary policy in the coming months to bring inflation within the target range.
“Holding interest rates at the current high level in the next few months is necessary because inflation in Serbia in November was the highest in Europe. An additional reason for maintaining a restrictive monetary policy is that core inflation, which reflects the influence of systemic factors such as fiscal and monetary policy, wage movements, remains high.
Reducing NBS interest rates would be macroeconomically justified when overall and core inflation enter the target corridor. Eventually, premature easing of the restrictiveness of monetary policy would result in slower inflation reduction, which is macroeconomically undesirable,” said Arsić.
It is expected that the average inflation rate in Serbia for this year will be around 12.4 percent, making it the third-highest inflation rate in Europe, after Hungary and Turkey. Above-average inflation in Serbia is a consequence of overly expansionary fiscal policy over the past two to three years, delays in starting the implementation of restrictive monetary policy, as well as an increase in energy prices this year.
In the next year, it is expected that inflation will be more than halved and will amount to less than five percent, with a decreasing trend during the year, so it is expected to enter the NBS’s target range in the second half of the next year.
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